LIABILITY TO PAY TAX IN CERTAIN CASES – PART-2

[Dr. Sanjiv Agarwal]

Chapter XXII of the Model Law contains Chapter XXII comprising of sections 108 to 115 which deal with liability to pay GST in eight special cases as follows :

Section	Liability
108	Liability in case of transfer of business
109	Liability in case of amalgamation / merger of companies
110	Liability in case of company in liquidation
111	Liability of partners of firm to pay tax
112	Liability of guardians, trustees etc
113	Liability of Court of Wards etc.
114	Special provision regarding liability to pay tax in certain cases (death, discontinued business, hindu undivided family or association of persons, on partition, dissolution of firm, termination of guardianship or trust etc).
115	Liability in other cases (discontinued business of HUF, firm, AOP; change in constitution of firm or AOP etc.)

This part covers sections 110 to 112 of the model law.

Company in liquidation

In case where a company, being a taxable person goes into liquidation or is being wound up and there are unpaid tax dues determined before or after such liquidation, every person who was a director of the company during the period for which the tax  was due, shall jointly and severally be liable for payment of dues unless he proves to the satisfaction of the Commissioner that such non-recovery is not attributed to any gross neglect, misfeasance or breach of duties on his part in relation to the affairs of the company.

For the purpose of understanding 'company' in liquidation, company means the     company as defined in section 2 (20, 68) of the Companies Act, 2013. Accordingly, a 'company' means a company incorporated under the Companies Act, 2013 or any previous company law. A company maybe a company limited by shares or by guarantee. A company is incorporated under section 3 of the Companies Act, 1956.

In case of company under liquidation, every person appointed by an order of the   Court/Tribunal as receiver of any assets of a company (liquidator) shall within thirty days of his appointment, give intimation of his appointment to the Commissioner. Commissioner to notify the liquidator within 3 months from the date on which he receives intimation of the appointment of the liquidator, the amount of tax, interest or penalty which is payable by the company.

While every person who was a director of company during the period of liability, independent directors who are not involved in affairs of the company and are    able to prove that non-recovery can not be attributed to gross neglect, misfeasance or breach of duty on their part, may not be liable for recovery from them.

Liability of Partners of the Firm

All the partners of any firm shall jointly and severally liable for payment of any tax, interest or penalty. Firm or partner shall intimate the retirement of any partner to the Commissioner by a notice in writing. Liability to pay tax, interest or penalty up to the date of such retirement, whether determined on that date or subsequently, shall be   on such partner. If no intimation is given within one month from the date of retirement, the liability of such partner shall continue until the date on which such intimation is received by the Commissioner.

If no intimation is given within one month from the date of  retirement, the liability of such partner shall continue until the date on which such intimation is received by the Commissioner.The intimation in writing about the retiring partner the Commissioner can be given by   the firm or by the retiring partner himself.

A limited liability partnership (LLP) formed and registered under the Limited Liability Partnership Act, 2008 shall be considered and treated like a firm and provisions of sections 111, 114 or 115 shall apply accordingly. A LLP is not a body corporate under the Model GST Law for recovery purposes.

Minor or Incapacitated Persons

Where the business in respect of which any tax is payable is carried on by any guardian / trustee / agent of a minor or other incapacitated person on behalf of and  for the benefit of such minor/incapacitated person, the tax, interest or penalty shall be levied upon and recoverable from such guardian  or trustee or agent, as the case may be.

Following persons shall liable to pay tax in respect of such business –

• guardian
• trustee
• agent

The amount of the tax, interest, penalty or any other dues which are recoverable from the minor or any such incapacitated person are the amounts -

• levied / assessed in the hands of guardian, trustee or agent.
• collected from the guardian, trustee or agent.

The term 'incapacitated person' is not defined in GST law. It may include persons of unsound mind or terminally ill persons, one who is incapable of or prevented from normal working / functioning.

According to Advanced Law Lexicon, 'incapacitated person' is any person who is impaired by reason of mental illness, mental deficiency, physical illness or disability,  advanced age, chronic use of drugs, chronic intoxication, or other cause (except    minority) to the extent that he lacks sufficient understanding or capacity to make or  communicate responsible decisions concerning his person.

(To be continued ….)